Political Polarisation I

I have been struggling to understand what happened to British politics between 2016 and 2019. A fissure opened up following the referendum which grew in time to a chasm. The country did not just divide, as time went on each tribe moved more towards the extremes. As part of my investigation I have come up with this simple model. It looks at polarisation without reaching for any psychological or behavioural explanations, which is why I refer to it as "rational".

A Rational Model of Political Polarisation

Policymakers make choices. The essence of decision is to choose between alternatives, at least in a rational model. To simplify, suppose a policymaker has to decide between option A and option B. Both advance the policy towards its goal. Option A has certain advantages, but also some downsides. Option B has some disadvantages and certain benefits. The rational decisionmaker then chooses, trading off benefits and costs of the different options

Policymaker
Option A	Option B
Advantages of option A	Disadvantages of option B
Disadvantages of option A	Advantages of option B

 

The policymaker operates in a political environment where lobbyists and campaigners will advocate for their preferred solution. From this perspective the information which matters to their case will be the advantages of their favoured option and the disadvantages of the alternative. The Lobby for A will emphasise the benefits of A and the problems of B. The campaign for B will do the reverse.

This can be summarised in the table below. While the rational policymaker must assess the trade-offs of the decision, campaigners have a simpler time highlighting the factors which suit their viewpoint.

	Policymaker
	Option A	Option B
Campaigner for option A	Advantages of option A	Disadvantages of option B
Campaigner for option B	Disadvantages of option A	Advantages of option B

 

The model demonstrates that even a rational decision process, under political conditions, has within it the seeds of polarisation. To give concrete examples, replace option A with Scottish independence and option B with retaining the union. Campaigners for Yes (independence) set out a vision of how a self-governing Scotland would operate and of the problems of union, such as the times when the UK is governed by a party rejected by Scots voters. No campaigners focused mostly on the costs of independence, particularly the economic impact. The benefits were fiscal and social, such as ties of family across national identity.

In the aftermath of the referendum, when voters have picked a side, they are caught up in the campaigner perspective rather than the policymaker viewpoint. They can explain their choice by reference to the advantages of A plus disadvantages of B (or vice versa). This explains the different distribution of viewpoints across the range of possible positions.

Would the SPD Candidate Be an Ally for Labour?

 Some Labour front benchers have spoken warmly about Olaf Scholz,the German politician who  has now been chosen as the SPD candidate for chancellor in the elections next year.

I am surprised given the gulf that exists between the policies which the SPD have supported in the coalition government in Germany. Mr Scholz himself is a fiscal hawk of a kind which is almost extinct in Britain.

Fearful that Labour might be tempted to follow the German example, I wrote this piece for Labour List:

Who is Olaf Scholz – and can Labour look to the SPD candidate as an ally?

The common perception of Germany is of a country with a strong economy. The costs of its trade surplus and its impact on other European countries is too little known. I try here to explain the chasm between the low-wage, low-investment approach of the SPD and Labour's alternative.

Trade Myths and the UK-US Trade Deal

 Britain needs a trade deal with the US. A deal will bring jobs and increasing exports will make us better off. 

In fact none of that is true. "A trade deal offers no tangible benefits – no jobs, no great boost to economic growth or productivity and now is a teachable moment when Labour can set out the truths about the economic impact of trade." I explain the reasoning on Labour List:

We should welcome trade with the US – but not a trade deal

The arguments against a UK-US trade deal are well known - from chlorinated chicken to the NHS. My aim was to present a novel argument for opposing the deal, put simply, whatever the costs there were not enough compensating benefits.

Income €1,650. Expenditure €4,300. For How Long?

It is not normal for the Treasurer to vote against the budget, as happened at the Brussels Labour AGM in June. But then it is not normal for an organisation with an income of €1,650 to decide to spend €4,300. 

As the Treasurer in question, I tried to prepare a budget that didn’t dip too far into the reserves. Our income is falling and even with the medical emergency our expenses are rising.

What really blew the budget out of the water was a demand to include €2,000 for various donations. This is possible only because we have substantial reserves built up from many years of members’ contributions.

Distrust

Underlying the willingness to run down our reserves through donations is the difficult relationship between the branch and the CLP, Labour International. This distrust has grown over recent years leading to a them-and-us outlook which I find unhealthy.

It appears that some members had been seized by the idea that our reserves could be taken by our CLP, Labour International, and spent in support of left-wing causes. The alternative, it seems, was to grab the reserves ourselves and distribute them to other causes.

There was never any prospect of Labour International dictating our spending priorities. This has now been confirmed by Labour International and by Party headquarters. The branch is the custodian of its own resources and the only constraints are those of ethics, its constitution and good financial management.

The first conclusion we should draw from this episode is that the breach between Brussels Labour and Labour International is a danger to our ability to run an effective branch for Labour members in Brussels. We must seek to create a dialogue aimed at finding a modus vivendi and beginning to restore trust. LI is our channel to the wider Party which we need to keep open.

Rational

My second conclusion is that we need a more rational approach to financial management.

Our income is down but our costs are rising. In a normal year, meeting costs, web hosting, Zoom subscription and a John Fitzmorris lecture already amount to €1,450 which leaves little for social events, campaigning or annual conference, let alone donations.

We will need the reserves to keep the branch activity going while we improve the income side. To persuade members to donate we need to sustain a level of activity that members will value enough to make a financial contribution.

Brussels Labour should develop a protocol for good financial governance. A clear set of principles for using branch funds and funds raised for supporting other bodies is needed. The officers and the Executive of the branch are the stewards of other people’s money and must uphold high standards of financial management.

This post is edited from an article which appears in the latest issue of Germinal, the Brussels Labour journal.

National Policy Forum consultation 2020

The NPF has launched it consultation exercise for 2020. It is inviting submissions until the end of June. Submissions should be posted to policyforum.labour.org.uk.

There are eight priority topics all of which relate to the impact of Covid-19. I am providing a link here to each of the documents in PDF format.

Economy, business and trade

Early years, education and skills

Energy, environment and culture

International

Health and social care

Justice and home affairs

Housing, local government and transport

Work, pensions and equality

Economic Common Sense and the Pandemic

In writing his great work of economic theory, J M Keynes said that he had struggled to free himself from “habitual modes of thought and expression.” In our time these habits of thought are those which took root during the decades when the market was seen as the central fact of economic life. Since the crisis of 2007/8 we have lost our faith in the supremacy of the market but we have struggled unsuccessfully to free ourselves from its habits of thought and expression.

 It could be that the present pandemic is providing a hard lesson on the inadequacy of our customary manner of speaking about the economy. There is possibly a teachable moment when we can change the terms in which the political discourse and create a new common sense based on the economic lessons of the pandemic.

The economic impact of the health crisis is not a simple matter of a fall in supply, or of demand or of “confidence”. It is not a market failure or a financial shock. It is not about inflation or debt and even the terms GDP and growth are somewhat irrelevant to what is happening. Put simply, workers have been told to stay home, workplaces are closed and so the production of many goods and services have come to a halt.

Thinking about production is one of the habits we lost during the period when only exchange in markets mattered. Production is one of the concepts we should popularise. The classical economists thought in these terms. Wealth is created by people going to work to produce the goods and services we need and want including the capital goods and business services which contribute to production.

Secondly, the response of the NHS to the crisis has changed our perception of healthcare workers. The way in which we value not just NHS staff, but care home and elderly services workers, is being transformed in this emergency. We are suddenly aware of the many other low paid workers from council services to supermarkets who are keeping us going. It is becoming clear that the “labour market” does not reward labour its true value.

This gestalt shift can also challenge one particularly unhelpful habit of thought. We have been told that the private sector creates wealth which pays for public services. In this moment we can see that the NHS itself produces a service without which we would be much poorer. Healthcare workers create a service which is consumed by patients. The only difference economically from a service like a theatre performance is that it is paid through taxation not tickets sold at the door.

Public services are part of the wealth produced by people at work. Public services add value to our economy, they are not a drain on it.

Of the many habits of thought we need to unlearn there is one which stands out. The idea of the economy as some thing apart is one which obscures reality. The economy is not a machine which follows its own rules and operates on its own logic. An economy is always embedded in a society. Even markets only work because of the rules and norms of the community that use them. Some of the rules are codified in law or contract and so an economy is embedded in political structures as well.

The pandemic makes some of this evident. The economy changes when the rules are changed by a medical emergency. Social distancing, alone, will not just change workplaces as they reopen; it will also change the decisions about what is produced and how.

The left has long struggled against the dominance of the market idea. Even after the financial crash of 2007/8, economic discourse returned to its familiar habits of thought. The pandemic offers a possibility, if politicians and commentators choose to use it, or changing the lexicon and renewing the vocabulary of economic discussion to reveal the reality that we are not powerless before the market and that we can make choices.

Talking Economics after the Pandemic

Is there any statistic less meaningful during this pandemic than the quarterly GDP figure? In ordinary times the regular GDP number is a barometer for the overall outlook of the economy. But who needs a barometer in the middle of a tempest?

When workers are told to stay home, when factories, offices, and building sites are closed it is obvious that output will fall and not by a little but by a lot. Equally, future projections of GDP are so clouded by the unknowns that they are not worth the electricity consumed in their calculation.

This crisis should be a signal that the way we talk about economics and economic policy is inadequate to the moment. While there may be rich and diverse theories of economy, in the regular discourse we are limited to a few key variables and a few stylised facts. In our public discussion of economic policy, we are constrained by language which is too limited.

The pandemic will have deep impacts on our economic wellbeing, but the usual notions of growth, “confidence”, inflation and financial markets are not where the action is. This is firstly a crisis of production rather than markets. Social distancing and the lockdown mean that production of many goods and services have fallen or stopped altogether.

One of the weaknesses of mainstream economic theory is its focus on exchange with little to say on production. Neo-classical economics concerns itself with markets where commodities are bought and sold. It views the economy as a system of linked markets each moving towards an equilibrium between supply and demand. It is not surprising, then, that public discourse is couched in the same terms.

In this crisis supply has fallen, but so has demand. Car production has ceased but then no one is buying new cars anyway. Why does it matter when supply and demand are still in equilibrium? If we expand our vocabulary, we can say that it is production which provides “all the necessaries and conveniences of life”, whether that is personal transport or healthcare or social care or software.

Of course, it does matter that no cars are produced or sold and no pints are being pulled. Production requires labour and most people’s income are wages and salaries. The government was right to introduce schemes to support incomes by keeping employees in place. Not only does that preserve the capacity for production but recognises the role of labour in the firm.

Neo-classical economics has little to say on distribution. In political discourse it is seen as a question for government to correct by redistributive policies. The idea that such problems could be dealt with at source is unthinkable within the frame of our current economic vocabulary.

A market oriented language also obscures how economies change and develop. Yet change is an important driver of prosperity. New products and new means of creating them allow better production from the same resources. Firms innovate, not markets. But firms do not innovate on their own. Publicly funded research, support to start ups lie behind much of the technology on sale today.

With a wider vocabulary it becomes possible to ask different questions, like what is it that we as a society value and want to have produced? Is it right that the wage rates of those who care for our elders are determined by a “labour market”? Is it right that the availability of homes for young families depends on a “housing market”?

The government’s difficulties with in securing adequate personal protection equipment and testing kits can be seen in this light. Government has seen the task as one of procurement from a notional market, and lacks the ability to engage with producers. Manufacturing companies can be remarkably flexible. If face masks are wanted they can be produced but government needs to do more than issue a tender. Government should have been actively organising the production of crisis fighting equipment calling on the expertise of producers.

There are economists who spend their time dealing with these questions, who work with theories on industrial organisation and production, on wages and employment and on innovation. These aspects of economic thinking rarely touch on the national dialogue on the economy. In order to understand the current problem and address the post crisis economy we will need to enlarge the scope of how we discuss economic affairs drawing on a wider set of ideas.